Ethereum explained: problems, basics, and predictions

One of the most crucial points of blockchain and cryptocurrencies, in particular, is the improved way of executing transactions. Compared to the solution cryptocurrencies offer, the traditional economic system falls behind. Let’s be honest, when it comes to online payments, transparency and security are what everyone is looking for and blockchain has a lot to offer in terms of those two things.

The cryptocurrency Ethereum is actually ahead of the target; smart contracts have taken over the business world. Every day the demand for Ethereum-based solutions is going up, and it comes at a price. Transaction speed is highly affected by the growing number of users and scalability is turning out to be a real problem. Apparently, the number of transactions the Ethereum blockchain can process per second is not that high. Moreover, the bigger blockchain gets, the harder it is to verify every transaction. Therefore, solving the problem of scalability while still keeping it decentralized is currently Ethereum’s top priority.

Transaction speed depends on a number of factors including the total number of miners as well as the number of transactions, the size of the block, and the nature of the smart contract. So if you compare the speed of established mechanisms like Visa, with its 45,000 transactions per second to Ethereum, with its average of 15, you’ll find that cryptocurrencies are way behind.

Ethereum Basics

To better understand the whole process, let’s have a quick look at the basics. Ethereum was born in 2013 and is still considered Bitcoin’s closest competitor today. While Bitcoin is written in C++, Ethereum is programmed in Turing, which basically uses a combination of several languages. Like its competitor, it uses proof of work (PoW) basis, meaning that new blocks are created only when miners solve certain mathematical equations.

The other defining difference of Ethereum is smart contract technology that not only allows users to track transactions, but also program them. Simply put, you can exchange anything (e.g. money, property, all sorts of assets) and make it workfor you, eliminating the middlemen. Ethereum offers a whole new range of real-world applications: prediction markets, banking contracts, digital identity management — you name it.

Possible Solutions

But let’s get back to the scalability problem. The creators of Ethereum as well as some other enthusiasts have been thinking about possible solutions and one of the favorites is sharding. The idea with sharding is that the blockchain is divided into shards and then nodes won’t be required to process all the data, as the transactions will be directed only to the nodes which are affected by a particular shard. Off-chain Computations is another concept that could lighten the Ethereum network by publishing transactions outside of the main blockchain. Replacing the proof of work with a proof of stake could also be quite beneficial and help save time. Proof of stake means that there will be validators who put their own Ether at risk when approving transactions. They won’t be earning Ether but will be getting transaction fees. A decentralized storage mechanism might be helpful as well when it comes to big data volume. This mechanism could be integrated into the blockchain and would allow the nodes to store only frequently used data while the entirety of the data would be stored in the cloud.

Predictions

What about the future of Ethereum? There has been an ongoing controversy and on the positive side is an independent financial consulting company, the deVere Group. They have predicted that Ethereum will jump to $2,500 by the end of 2018. An impressive promise, considering the current price of two hundred something.

ConsenSys Capital co-founder, Andrew Keys, concluded in his article “18 Blockchain Predictions for 2018” that the price of Ether will exceed $2,000 in 2018. He also stated that Ether will continue to outperform Bitcoin and that the total market cap of Ether will exceed that of Bitcoin in 2018.

According to Cointelegraph Fundstrat head of research, Tom Lee, “Ethereum will reach $1,900 by the end of 2019 — a price point that is at least 40 percent higher than Ethereum’s all-time high of $1,349, recorded on January 13, 2018”.

The CEO of hedge fund Polychain Capital, Olaf Carlson-Wee, predicts that the entire market capitalization of Ethereum will exceed that of Bitcoin by the end of this year.

Others prefer to stay pragmatic though. According to InvestingHaven, the price of the Ethereum coin should touch $1000 by the year 2020.

Whatever the future holds, Ethereum, despite the scalability problem, has proven to be a game changer. The possibilities offered by smart contract technology are endless and the best way to show your support is to invest in it. Lumi wallet allows you to store and send Ether and ERC20 tokens. If you want to know more — subscribe to our Twitter and Facebook, and share your thought in our Telegram public chat and Reddit.

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